Second-lien recovery in a distressed conversion depends heavily on one number: the gap between what the senior lender is owed and what the property can actually sell for today, at its current 60% occupancy, in the Dayton market. That gap, if one exists, is your recovery. If there is no gap, the senior takes the asset and you get nothing.
A few things shape whether that gap exists here.
Conversion assets at stabilized occupancy trade on a cap rate (the ratio of annual net income to sale price). At 60% occupancy, the income is thin, so the cap-rate math produces a low number. Buyers will also discount for execution risk, meaning the work still required to fill the remaining 40% of units. Those two forces together push the sale price down, often hard.
The question to answer as precisely as you can is this: what does the senior lender say they are owed, including accrued interest and default fees, and what do local brokers say a 34-unit partially-occupied former call center would sell for right now? That comparison is the whole ballgame. A broker familiar with Dayton multifamily conversions can give you a realistic opinion of value in your current condition, not a stabilized pro-forma number.
I'd also say that your actual options going forward, whether to negotiate with the senior, bring in a capital partner to cure and stabilize, or accept a loss, require a real estate attorney and possibly a workout specialist. I can explain how second-lien recovery works generally, but the specific path here is a legal and negotiation question.
The strategy guide's section on conversion feasibility is worth reading because it explains why not every conversion "pencils," which is directly relevant to why your sponsor ran short.
What does the senior lender say they are owed at this point?
